A qualitative assessment of the medicare prospective payment system

Abstract

This paper employs commonly accepted criteria to evaluate the potential outcomes of the Medicare pricing mechanism. The analysis suggests that the recent revisions in the Medicare payment system have less potential to contain increases in total hospital costs than those embodied in all-payer systems. In addition, this paper also suggests that the pricing mechanism will jeopardize the financial viability of many hospitals while exacerbating inequities that emanate from differential pricing policies. Finally, when viewed from the perspective of insured beneficiaries, it is reasonable to expect that the payment mechanism will reduce not only access to inpatient care but also the use of service once admitted.